2023-07-20 12:59:41
After 4 record years with mortgage rates around 1%, the start of 2023 put an end to this euphoria in the real estate sector. Thus, the rise in interest rates observed for several months and the fall in the supply of goods and loans have led to the sharp slowdown that we are seeing today.
The war in Ukraine and the energy crisis led to a very strong and very rapid upturn in inflation, which prompted the European Central Bank to raise its key rates on several occasions, thus contributing to raising the cost of money in a very fast.
Evolution of rates: what happened between June 2022 and June 2023?
No more 1% rates, in June 2022, the vast majority of bank scales were between 1.50% and 1.90%. In June 2023, nearly 80% of the scales exceed 3.70% over 20 years!
The good news is that the stabilization of OATs leads to a gap which is becoming more and more favorable to the banks with the rates for loans to individuals, which will push them to lend more; in addition, the wear rate, once once more revised upwards, reached 5.09% in July 2023 on loans over 20 years and over. Another good news because it seems more in line with the rates practiced on the market. Remember, the wear rate is the maximum legal all-inclusive rate (rate but also insurance, warranty, costs, etc.).
What regarding the real estate purchasing power of French households?
The impact of rising interest rates
In January 2021, nearly 70% of households had a debt ratio below 35% and only 22.13% above 40%. Over the last few months and with the increase in rates, the situation has become much more complicated. In October 2022, 58.14% had a debt ratio below 35%, 13.47% between 35% and 40% and 28.39% above 40%. In June 2023, barely one out of two files remained below the 35% debt threshold, i.e. financeable, while a third exceeded 40% debt.
If we now project on what awaits us at the start of the school year, namely rates around 4%, the share of financeable funds will decrease further. Indeed, the impact is immediate because for a loan of 200,000 euros over 20 years, the net monthly income required will be 3,650 euros, for a monthly payment of 1,269 euros. Thus, between January 2022 and September 2023, French households will have lost on average between 50,000 and 60,000 euros in borrowing capacity.
Another example, in January 2022, for net income of 4,000 euros and with a rate of around 1.20%, the household’s borrowing capacity was 282,000 euros. In June 2023, with the same starting conditions and a rate of 3.80%, it amounts to 224,500 euros. In September 2023 the borrowing capacity will be at 221,000 euros.
« Between 2021 and June 2023, the share of financeable files fell from 70% to 55%. It is undeniable that with the current economic context and the rise in rates, the purchasing power of households is very impacted. For a loan of 200 000 euros over 20 years, the monthly payments have increased and in order to compensate for this increase, between the 2 reference periods, it would be necessary to earn 25% more or hope that the value of the goods collapses by 25%analyzes Mael Bernier. Unfortunately none of these solutions are really credible. ».
And the Lemoine law?
The Lemoine law is clearly the purchasing power law for households. What results since June 2022, the date from which new borrowers have the right to change their loan insurance at any time?
Today, the average age of people who take the steps to change insurance during a loan is on average 45 years old, holders of an initial loan of around €230,000 over a period of 24 years. By having the freedom to choose “cheaper” insurance, the amount of monthly payments is reduced considerably. The average monthly gain according to Meilleurtaux files is 115 euros; i.e. a total gain of 23,575 euros.
4% for back to school
« After 2022, which was a pivotal year, the year 2023 will undoubtedly mark the real estate sector as the year of changeover. The euphoria is over, the rise in rates is putting a strain on borrowing capacity and this rise is not over, we are expecting 4% for the start of the school year. Moreover, the latest recommendations from the HCSF are totally insignificant and will not make it possible to make the market more fluid. The situation therefore seems to be blocked between buyers who are waiting for a hypothetical fall in prices, weakened by the incessant decline in their borrowing capacity, and owners who are increasingly rare sellers. To conclude, it should be remembered that the rise in rates over the past 18 months would only be offset by a 25% drop in prices, this is a completely improbable scenario as demand for housing continues to increase and the construction is almost at a standstill “, concludes Maël Bernier.
What to remember from the 37th Real Estate Credit Observatory
Meilleurtaux draws up in its 37th Real Estate Credit Observatory, a report on the 1st half of the year 2023 as well as the main developments compared to the year 2022.
Requirement
20% drop in loan applications compared to 2022. A regular drop from month to month.
On the rates
The rise in rates that began in March 2022 is confirmed to reach 3.80% in July 2023. 3.45% is the average rate on offers published over the last 30 days, all durations combined.
OAT
Also rising rapidly since March 2023. Stabilization for a few weeks around 3%.
Debt ratio
A third of the files received by Meilleurtaux exceed 40% debt
Status of the request
« After the euphoria, the market is now sluggish with a drop in demand, supply and strong banking restrictionsnotes Mael Bernier, spokesperson for Meilleurtaux.com, with a drop in demand which is accentuated during the second quarter of 2023.»
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